April 10, 2014

Challenger, Gray & Christmas Inc. (the Chicago-based outplacement and executive coaching consultants with dozens of offices across the USA) made two interesting observations on their website. The first was that the number of Americans quitting their jobs is at a post financial crisis high of 2.4 million.  The gap between Americans quitting their employment and those forcibly laid off is now at its broadest since  the Spring of 2010 (when the ratio went positive in favour of those voluntarily leaving work). Indeed US employers announced the lowest level of job cuts in Q1 of any quarterly period over the past 19 years.

It would appear that qualified Americans are leaving positions they don’t like, or are being lured to greener pastures.

The second fact set released by this firm suggested that the reality described above does not apply to US CEOs. Departures of American CEOs rose almost 10% in March of 2014. Both the rate of change and the absolute number spiked to levels that surpassed the levels experienced during the financial crisis and its aftermath in 2009 and 2010. Q1 2014 CEO departures were fully 18.4% above the year earlier period and 23.4% above Q4 2013.

By region technology-heavy California saw the largest jump in CEO departures at significant firms , with fully 50 CEOs jumping or being pushed in this state. The industries producing the largest number of CEO departures were:


Health Care                            86

Computer/IT                         40

Financial                                 39

Entertainment                       17

Whilst some are retiring, there is a sense that other CEOs are being asked to leave as robust profit growth is proving harder to achieve. The 2010-2014 period represented, in some ways, an abnormally easy period for CEOs as this was a time when many were recapturing lost ground. It can therefore be argued that, despite a generally improving US recovery, the rate of change in US profits may well be decelerating.

If boards are proving rather more sceptical about CEOs then investors proving growingly sceptical about valuing high-growth names (an area where technology is heavily represented). After a healthy run in 2013 and on into 2014 institutional and retail investors are proving more resistant to claims made on behalf of high growth technology, social media and other companies carrying lofty valuations. Most at risk are those combining high-concept with a limited history of revenue generation and an absence of profit.

Some case studies of recent market hesitancy include:

King.Com, the producer of the smartphone game Candy Crush, saw its shares sag 15% on listing, thereby earning it the title of the worst performing meaningfully-sized IPO of the past 20 years.

Sina Weibo, a Chinese variant on Twitter, downsized its proposed IPO size from $500 million to up to $427 million.

Share price charts of this new crop of go-go names help underscore a more generalised nervousness regarding the concept of paying up for the promise of growth. We believe that this will – to an extent –  feed through into both M&A markets as well as the market for venture capital and private equity financing. Falling Internet Stocks